Don Boudreaux reminds us that today marks the birthday of Adam Smith—at least according to the inscription on his tombstone.
In honor of this occasion, I’m revisiting one of my earliest contributions to antiwar.com. A revised version will also feature in a forthcoming book focused on foreign policy.
Here it is.
Adam Smith’s Economic Argument Against Imperialism
Antiwar.com, November 28, 2005
When I suggest that people dive into Adam Smith’s Wealth of Nations (full title: An Inquiry into the Nature and Causes of the Wealth of Nations), I often encounter a dismissive scoff, as if the musings of 1776 are utterly irrelevant today. The prevailing sentiment seems to be, “That’s so last century.” This reaction usually reveals that the scoffer has likely not engaged with Smith’s work. His book is filled with timeless insights: from the tendency of competitors to collude, to the inefficacy of government intervention in such matters, to the benefits of private property and free trade, and even to the alarming inefficiencies in educational institutions—yes, even in his era. Most pertinently, Smith makes a compelling case against imperialism.
Indeed, Adam Smith stands out as a remarkably articulate critic of imperialism during the 18th century. He particularly scrutinized Britain’s attempts to retain control over the American colonies. Rather than rallying with an 18th-century variant of “No blood for oil,” he meticulously assessed the financial implications of imperialism for the British populace, ultimately concluding that the costs far outweighed any perceived benefits.
According to Smith, the sole advantage for Britain lay in the monopoly profits enjoyed by British merchants from colonial sales. Conversely, the costs incurred by Britons stemmed from the military expenditures necessary to uphold that monopoly. Here’s a notable excerpt from Smith:
The maintenance of this monopoly [on trade with the American colonies] has hitherto been the principal, or more properly perhaps the sole end and purpose of the dominion which Great Britain assumes over her colonies. … The Spanish war, which began in 1739, was principally a colony quarrel. Its principal object was to prevent the search of the colony ships which carried on a contraband trade with the Spanish Main. This whole expence is, in reality, a bounty which has been given in order to support a monopoly. The pretended purpose of it was to encourage the manufactures, and to increase the commerce of Great Britain. But its real effect has been to raise the rate of mercantile profit. … Under the present system of management, therefore, Great Britain derives nothing but loss from the dominion which she assumes over her colonies.
Smith elaborated further, highlighting that the expenses associated with defending the colonies outweighed any potential benefits to Britain. He stated:
A great empire has been established for the sole purpose of raising up a nation of customers who should be obliged to buy from the shops of our different producers all the goods with which these could supply them. For the sake of that little enhancement of price which this monopoly might afford our producers, the home-consumers have been burdened with the whole expence of maintaining and defending that empire. For this purpose, and for this purpose only … a new debt of more than a hundred and seventy millions has been contracted over and above all that had been expended for the same purpose in former wars. The interest of this debt alone is not only greater than the whole extraordinary profit which it ever could be pretended was made by the monopoly of the colony trade, but than the whole value of that trade….
Adam Smith as an Early Public Choice Theorist
But that’s not the end of the story. Smith astutely noted that the distribution of costs and benefits associated with maintaining the colonies was far from equitable, leading to the reluctance of the British to relinquish their imperial grip. Consider this renowned passage:
To found a great empire for the sole purpose of raising up a people of customers may at first sight appear a project fit only for a nation of shopkeepers. It is, however, a project altogether unfit for a nation of shopkeepers; but extremely fit for a nation whose government is influenced by shopkeepers. Such statesmen, and such statesmen only, are capable of fancying that they will find some advantage in employing the blood and treasure of their fellow-citizens to found and maintain such an empire. Say to a shopkeeper, ‘Buy me a good estate, and I shall always buy my clothes at your shop, even though I should pay somewhat dearer than what I can have them for at other shops’; and you will not find him very forward to embrace your proposal. But should any other person buy you such an estate, the shopkeeper would be much obliged to your benefactor if he would enjoin you to buy all your clothes at his shop.
In essence, Smith argued that the costs of sustaining colonies to maintain a preferential trade arrangement outweighed the benefits. His assertion that this endeavor is ill-suited for a nation of shopkeepers illustrates the disparity in cost-burden distribution; shopkeepers bear only a fraction of the expenses while reaping the majority of the rewards. If they were solely responsible for the costs, the arrangement wouldn’t hold any appeal. This asymmetrical distribution of costs and benefits has since become a cornerstone of modern economic theory, particularly in the realm of public choice economics, pioneered by thinkers like James Buchanan and Gordon Tullock—yet Smith was decades ahead in recognizing this concept.
Smith believed that the British government would cling to the colonies through force. He articulated this sentiment as follows:
To propose that Great Britain should voluntarily give up all authority over her colonies, and leave them to elect their own magistrates, to enact their own laws, and to make peace and war as they might think proper, would be to propose such a measure as never was, and never will be adopted, by any nation in the world. No nation ever voluntarily gave up the dominion of any province, how troublesome soever it might be to govern it, and how small soever the revenue which it afforded might be in proportion to the expence which it occasioned. Such sacrifices, though they might frequently be agreeable to the interest, are always mortifying to the pride of every nation, and what is perhaps of still greater consequence, they are always contrary to the private interest of the governing part of it….
Smith even foresaw the Revolutionary War and its potential outcome, writing:
[I]t is not very probable that they will ever voluntarily submit to us; and we ought to consider that the blood which must be shed in forcing them to do so is, every drop of it, blood either of those who are, or of those whom we wish to have for our fellow-citizens. They are very weak who flatter themselves that, in the state to which things have come, our colonies will be easily conquered by force alone.
Wise words from a wise man.
